I apologise for my typing speed exceeding 100wpm and words flying from my finger tips almost at the speed I can speak them.
I studied all of your post carefully. Some observations first. Your starting line is analogous to psychiatrists who regularly go ‘I’m not a lawyer’ and then ‘my remit is caring for patients’.
In the words of the most hated former speaker of the House, Bercow, I’m not interested in flying flamingos. 

Logic prevails above all medical and legal reasoning. We can head back to Bolam and Bolitho to revisit that, if needed.
A bloke some 400 years ago, lay in a bed for most of 40 years of his life and created the mind-body dualism that was to infect nearly all of legal and medical systems.
Enter exparte Smith which was taken as separating and defining ‘nature’ and ‘degree’ when it didn’t and ‘infected’ minds and thinking.
Hence Thomas Cardinal Wolsey was right to say, “Be very, very careful what you put in that head , because you will never, ever get it out.”
The Mental Health Act 1983 (Amended 2007) like it or lump it - because Parliament is supreme - is clear on the issues surrounding detention criteria and ‘likely to relapse’ is not in the wording.
It makes perfect sense to me not because I am a psychiatrist, based on my previous explanatons; driven by logic - not medical authority, not legal precedent. To recap it depends on whether lack of insight sits partly in ‘nature’ and partly in ‘degree’ depending the overall characteristics of the patient’s mental disorder.
Totally correct.
I do not know the case and not interested in specifics as this is in the public domain. DIP is hardly ever properly diagnosed from my experience over the last 30 years. So I am ‘statistically biased’ in my views due to poor practice I see ‘out there’. All DIPs should be transient simple because logically they cannot persist outside of continued mind-altering substance misuse.
However, the confusion arises in a blur between what is a transient DIP and something else that merges into a psychosis such as schizophrenia. Some may have forgotten the case of Clunis from around 1991-ish and repeats of the same confusions in several other inquiries. Lessons learned? Nope! Psychiatrists do as they please because ‘we are doctors’.
All I can say is that in 30-odd years of experience I have come across maybe two pure DIPs. I must have been working on all the wrong places.
For the most part many DIPs merge and blend into schizophrenia in the settings I’ve worked in.
The linear idea that ‘people’ will not become psyhotic again because they say ‘I’ll never use drugs again’ is just that - it’s easy. Most people I’ve met with a DIP will have had some form of dependence or serious habituation to mind-altering substances to cause their DIPs. Let’s call that addiction to for the moment - a concept well defined by the Edwards clinical criteria. Reinstatement after abstinence is the big one.
If the statement of reasons was that clear, you can and should challenge it. Pro bono.
DIP is a mental disorder for the purposes of the MHA. [But not everybody believes that].
I’ve seen patients locked up for schizophrenia - for years - because they simply refuse to accept they suffered with schizophrenia. In those scenarios the lack of insight was both ‘nature’ and ‘degree’. In other words ‘you (meaning the patient) can’t demonstrate such a lack of insight, refuse to do offence related work and simple argue that you ought to be let out now.’